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Can T-Mobile Achieve Earnings Growth in 2Q17?

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T-Mobile’s EBITDA expectations in 2Q17

In the previous part of this series, we learned how much revenue growth we can anticipate from T-Mobile (TMUS) in 2Q17. Now let’s take a look at T-Mobile’s anticipated adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) in 2Q17. Wall Street anticipates T-Mobile’s adjusted EBITDA to rise ~14.3% YoY (year-over-year) to reach ~$2.89 billion in 2Q17.

Earlier in 1Q17, T-Mobile’s adjusted EBITDA was ~$2.7 billion, compared to ~$2.8 billion in 1Q16. In 1Q16, adjusted EBITDA included a pre-tax gain of $636 million from spectrum license transactions versus $37 million in 1Q17. Excluding the spectrum gains, adjusted EBITDA grew ~20.8% YoY. T-Mobile’s adjusted EBITDA margin, excluding the spectrum gains, rose from 33% in 1Q16 to 36% in 1Q17.

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In 1Q17, excluding the spectrum gains, T-Mobile’s adjusted EBITDA rose significantly YoY, mainly due to efficient cost management and a healthy top line that benefited from strong market acceptance of T-Mobile ONE plan. Also, the SG&A (selling, general, and administrative) as a percentage of service revenue fell by 150 basis points YoY while the cost of service fell by 240 basis points YoY as a percentage of service revenue.

T-Mobile’s peer comparison: EBITDA margins in 1Q17

As per company filings, Verizon (VZ) and Sprint’s (S) consolidated adjusted EBITDA margins were 37.3% and 43.8% respectively, in calendar 1Q17. Meanwhile, AT&T’s (T) combined domestic wireless operations EBITDA margin was 41.8% during the same quarter. Sprint is enjoying higher margins than peers due to cost savings and higher equipment contribution.

Continue to the next part of this series for a look at T-Mobile’s postpaid phone net additions.

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